The FINANCIAL -- Despite economic downturn and market fluctuations, MFO Crystal managed to end 2015 with 40% growth. The credit portfolio of the company has grown by 48%, totalling GEL 108 million. Overdue loans make up just 1.3%. Against the background of dramatic devaluation of the Georgian Lari, Crystal started offering the conversion of loans from foreign currencies into the national one, so as to bring relief to its customers. For further protection of citizens from exchange risks the company will continue crediting in the national currency. Having social responsibility is considered by the management of the company to be even more important during times of tough economic conditions.
“Despite the economic, political and financial difficulties last year, Crystal managed to achieve the desired growth rate and maintain a good quality of assets. The credit portfolio of the company increased by 48% and reached GEL 108 million. It was the highest growth rate among the leading microfinance organizations operating in Georgia as of 2015. Due to the local currency devaluation and deterioration of borrower’s repayment capacity, the overdue loan portfolio has been slightly increased and amounted to 1.3%. The overall risky portfolio, including restructured loans, made up 2.7%, which is still one of the best asset quality ratios in the sector,” Malkhaz Dzadzua, CEO and General Director at MFO Crystal, told The FINANCIAL.
According to Dzadzua, there is a risk that during times of tough economic conditions CSR and business ethics will become less important for the companies. However, he believes that it is less dependent on external factors. “The corporate culture inside the company and employees’ moral standards are more important in this case. If social responsibility is indeed among the company’s core values and the owners have a strong commitment to it, then it will always be a top-priority for any responsible businesses. On their side, consumers will easily notice it in their daily relations with the company. Revealing social responsibility and protecting consumers’ interests are even more necessary during an economic downturn. Otherwise, ‘falsely-responsible’ companies are better lustrated during such times. Dissatisfied customers will be even more damaging than the cost issued for CSR activities.”
MFO Crystal plans to have a relatively cautious lending strategy this year. The main emphasis will be on the quality of the portfolio and effective risk management. The company will continue a portfolio growth and 5-6 new branches will be added to its chain. Crystal will further increase its concentration on the regional and rural markets. As Dzadzua said, they intend to continue active financing in the national currency and also offer interesting innovating projects to young start-up entrepreneurs.
“Regardless of the difficulties in the region, Crystal traditionally successfully manages to raise funds from international financial markets. Last year we were able to obtain about USD 20 million of credit resources from the European and US markets. Just recently, the company successfully completed a second round of equity investment and one of the leading Dutch-Belgian companies has become a new shareholder of Crystal. Accordingly, our foreign partners are still having a positive attitude and are steadily continuing financial support to Crystal” said Dzadzua.
Q. The fact that the exchange rate remained stable as of the end of 2015 has resulted in a relative sense of security. Meanwhile, from the second half of January 2016 we still have witnessed dramatic devaluation of the GEL. What are your expectations in this regard for 2016?
A. Georgia has witnessed almost 40% devaluation of the national currency. It was accompanied by insufficient and ineffective communication of the Government and Central Bank with the public. Against this background, it is difficult to talk about positive expectations and long-term stability yet. Loss of confidence happens very easily and quickly, but its restoration requires a lot of time, hard work and effort. Therefore, we think that certain difficulties are still expected. However, we are still relatively optimistic about the future and hope that thanks to the recent experience, the public and the Government are more prepared to meet the new challenges.
Q. Are the ongoing economic problems fundamental, or temporary?
A. Unfortunately, right now we are dealing with a combination of several internal and external negative factors. There are mixes of fundamental as well as short-term problems. The most severe is devaluation of the national currency, decline of economic activity, high poverty and unemployment level. All of these are added to by ongoing political problems and external challenges. As a result, we get a less stable and predictable environment. Due to the increased risks, it is hard for businesses to make long-term forecasts and attract new solid investments.
Q. The importance of reducing the dollarization rate generally becomes part of the agenda during a period of devaluation. However, during such times people’s trust in the national currency naturally decreases. How proper is our monetary policy in this direction?
A. It is bad that problem of dollarization is mostly addressed during the times of high devaluation, when it is already too late. The current dollarization rate, which is almost 70%, demonstrates the less effectiveness of the current monetary policy. For such a weak and import-dependent country as Georgia, the issue must always be part of the agenda of the Government and central bank. In parallel to a prudent monetary policy and wise regulations, it is necessary to initiate a series of promotional and incentive programmes, to gradually increase confidence in the national currency amongst the population as well as business entities. Outreach-literal programmes, support of export-oriented enterprises, assisting start-ups and innovative ideas and ensuring a long-term stable environment is but a small list of steps that are required in this regard.
Q. Crystal has always been focused on the dominance of its credit portfolio in the national currency. During the peak of the devaluation you even offered your borrowers the opportunity to convert loans from foreign currencies into the national one. Another issue is persuading customers to save in the national currency. What is your view on this, how can financial companies encourage customers to start saving in Lari?
A. Crystal is one of the few companies that is actually trying to encourage financial transactions in the national currency. We do not try to transfer exchange rate risks to our consumers. Whereas the dollarization rate of the banking sector is 70%, in our company it comes to just 27%. So, 73% of our loans have been issued in Georgian Lari (Increased from 64% as of last year). We believe that like Crystal, all responsible financial companies can protect customers from foreign exchange risks and are able to manage their major transactions in the national currency.
Q. The head office of Crystal is located in Kutaisi, in the region of Imereti. You mostly target offering financial assistance to the regions. Tell us from the example of your customers, how have the economic conditions changed since 2014, from the beginning of the dramatic fall of the Georgian Lari?
A. A focus on regional businesses, small entrepreneurs and farmers is Crystal’s top priority. 95% of our loan portfolio is invested in the regions, outside Tbilisi. Devaluation of the Lari has significantly worsened the financial situation and repayment capacity of our customers. Though they borrowed from Crystal in Lari and thus their credit liabilities have not increased, many of them have taken out a parallel loan in another credit facility, which is mainly in US Dollars. Therefore, the overall situation and credit burden became quite complicated for them. The fall in solvency in general has led to a decrease in demand and sales in the local market. Consequently, the income level of customers has reduced and they are in no hurry to expand their businesses.
Q. The flagships of CSR activities in Georgia are mostly large companies. Crystal is a rare exception in this regard. What encouraged you to make your company so socially responsible?
A. Today, there are more than 500 workers employed at Crystal. We have 32 regional branches and company’s total assets increased up to GEL 120 million. Therefore, we can say that Crystal has already become a large company in the country. However, a focus on social responsibility and taking care of consumer rights started much earlier and the small size of the company was not a hampering factor for it. We think that fundamental factor for the company in this case is having the right corporate values. Stakeholders, especially founders and management, should have a clear will to do business responsibly. Active involvement on a global scale and relationships with international partners is another important factor. It helps to make effective transmission of the best international standards and adapt to local reality.
Q. Share with us your experience on what the benefits are of the ‘SMART Campaign’ that you implemented, and why CSR should be part of the agenda of every company?
A. The International SMART campaign for Client Protection was initiated in 2008-2009. It was a time when during the global financial crisis, a violation of consumers’ rights, unethicalness and aggressive treatment from banks reached their zenith. SMART Campaign was created in response to these processes. It set up seven universal principles for client protection. This campaign has proved that meeting these rules is wise and profitable also for the companies themselves, since it leads to a high level of customer loyalty. Consequently, socially responsible companies would get more stable, loyal and solvent customers. All of this is one of the main conditions for the success of business in the long-term. More than 1,500 MFOs worldwide are affiliated in the Smart Campaign to date. They support the implementation of these principles in their daily activities. In Georgia, Crystal was the first company to have joined this initiative and introduced its principles in dealing with customers.
Q. What is the main CSR policy of Crystal?
A. The CSR activities of Crystal incorporate three main directions. The first is Responsible Business - protection of consumers’ rights, Smart Campaign, universal standards and code of ethics. The second direction is Social Performance Management - measuring and monitoring of the work of the company in order to see what we have changed for clients. The third direction is Social Projects - charity, ecology, environment protection and education.
Q. Please tell us about the internal CSR activities of Crystal?
A. One of the directions of the above-mentioned universal social standard concerns internal CSR. It gives recommendations on how a responsible company should treat its employees. As a result of various observations and internal or external surveys, we can proudly state that Crystal is an exemplary Georgian company, where employee rights are highly protected. Our organization has not been doing business at the expense of the exploitation of workers. The majority of our employees have a constant (permanent) labour contract. Working conditions are in line with the high commercial standards. There are internal career and professional growth plans. The company has a competitive and outcome-based reimbursement system. Working hours are strictly fixed. We never overload our workers. Our employees are highly involved in the formation of the company’s plans and goals. We also support improvement of their qualification by different study programmes and trainings.